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The Colorado Department of Revenue has issued a permanent regulation on the sales and use taxation of software, with guidance on the de minimus rule and maintenance agreements. De minimus standardized software includes the base language used to write the software, prewritten subroutines with negligible commercial value, and prewritten subroutines that are purely incidental to the purpose of the software developed for the specific user. Standardized software is not de minimis if its purpose is to principally fulfill one or more purchaser specifications, it is identified prior to purchase in any way as being part of the software except with respect to the language software it is to be written in, or its value exceeds 25% of the value of the software designed or developed to the specifications of a specific purchaser. Standardized software does not include software that is designed or developed to the specifications of a specific user. Software designed and developed to the specifications of a specific user is not considered standardized software simply because it includes de minimis standardized software as part of its code. If a developer purchases de minimis standardized software to include in software that is designed or developed for a specific user, the developer must pay sales tax on the purchase of the standardized software.

Standardized software does not include maintenance agreements for the maintenance of standardized software. If the price of the maintenance agreement includes the price of standardized software, the agreement must contain a reasonable, separately stated charge for the software. If the value of the standardized software is less than 25% of the price of the maintenance agreement, then the agreement is not considered to include standardized software.

Colorado will recognize and tax an apportioned amount of computer software that will be used in multiple states under Multiple Point of Use (MPU). The regulation outlines how sales and use tax on MPU software is to be apportioned. (Reg. 39-26-102.13, Colorado Department of Revenue, effective March 2, 2011)

(04/13/2011)

Two pieces of Colorado sales and use tax legislation to repeal the “Amazon law” have been indefinitely postponed in committee. The first bill – S.B. 56 – would have provided a use tax exemption for Colorado purchases of tangible personal property from out-of-state retailers that do not collect Colorado sales tax and do not meet the requirements of the due process clause or the commerce clause as discussed in Quill Corp. v. North Dakota. The bill would have effectively nullified the Amazon law and in essence eliminated the use tax. The second bill – S.B. 73 – would have repealed multiple tax bills enacted in 2010, including the Amazon law. Both bills were indefinitely postponed in committee on February, 14, 2011. (S.B. 56 and S.B. 73, indefinitely postponed February, 14, 2011)

(03/14/2011)

A federal district court has issued a preliminary injunction prohibiting Colorado from enforcing remote-seller reporting requirements on out-of-state sellers not obligated to collect Colorado sales tax. The provisions require said sellers to notify Colorado customers of their obligation to self-report and pay use tax, provide their Colorado customers with an annual report that details the customer’s purchases from the seller in the prior year, and provide the Colorado Department of Revenue with an annual report including the name, address, and total amount of purchases for each of their Colorado customers. The court found that there is a substantial likelihood that the statute violates the federal Commerce Clause by discriminating against and imposing an undue burden on interstate commerce. The reporting requirements burden imposed on out-of-state sellers is not imposed on in-state sellers. It is unlikely that Colorado will be able to demonstrate a lack of nondiscriminatory alternatives to the statute. The statute imposes these requirements on out-of-state sellers whose only contact with Colorado is through mail or common carrier. The ruling in the U.S. Supreme Court case Quill Corp. v. North Dakota likely protects the out-of-state retailers from these burdens on interstate commerce. While the burden of the reporting requirements may be different than the burden of collecting and remitting tax (as addressed in the Quill case), the sole purpose of the burden in this case is the collection of use tax when sales tax can’t be collected. The plaintiff in the court case demonstrated that denying the preliminary injunction would cause irreparable injury in the form of compliance costs that they wouldn’t be able to recover if the statute is later declared unconstitutional. While the injunction might delay Colorado’s collection of some use taxes, it would not prevent the collection of those taxes if the statute is upheld. In addition, the plaintiff argued that the enforcement of a law that is likely unconstitutional does not serve the public interest. The Colorado Department of Revenue has informed taxpayers that they are not required to comply with the remote-seller reporting requirements, pending further action by the court. (Release, Colorado Department of Revenue, January 28, 2011; The Direct Marketing Association v. Huber, U.S. District Court for the District of Colorado, No. 10-cv-01546-REB-CBS, January 26, 2011) For more details on the original bill visit our prior News Item here. NOTE: Colorado has struck down the remote seller reporting requirements in this bill. Click here to see the News Item.

 

For an update on this news item, see Colorado Use Tax Notice and Reporting Requirements Become Effective July 1, 2017

(04/23/2012)

Governor Bill Ritter signed a bill, effective March 1, 2010, that imposes a sales tax collection responsibility on out-of-state remote retailers that do not collect Colorado sales tax. The nexus presumption bill applies to any retailer that is part of a corporate group that includes another retailer with a physical presence in Colorado. As a result, the out-of-state retailer is presumed to effectively be doing business in Colorado. Out-of-state retailers can challenge the presumption by proving that the Colorado retailer (who is part of the same corporate group) did not solicit on their behalf. Affected retailers must notify Colorado purchasers that sales or use tax is due on their purchases and that a sales or use tax return must be filed. Failure to provide notification could result in a penalty of $5 for each failure. The retailer must also notify Colorado customers by January 31 of the year following purchases that sales or use tax is due. The bill authorizes the Colorado Department of Revenue to require out-of-state retailers to submit annual statements summarizing purchases made by Colorado residents. EMERGENCY REGULATION 39-21-112.3.5 was also promulgated by the Department of Revenue further detailing the requirements and the language required to be included on each invoice. (H.B. 1193, Laws 2010, EMERGENCY REGULATION 39-21-112.3.5 ) 

 

For an update on this news item, see Colorado Use Tax Notice and Reporting Requirements Become Effective July 1, 2017

(04/23/2012)

In response to Colorado’s recent elimination of the exemption for electronically-delivered software, an emergency regulation has been issued that explains, among other things, the taxation of standardized software that is concurrently available for use in multiple jurisdictions. If the purchaser knows at the time of purchase the software is Multiple Point of Use (MPU) Software, he or she should present the seller with a MPU Exemption Certificate. Upon receiving the MPU Exemption Certificate, the seller is relieved of all obligations to collect, pay, or remit tax, and the burden is on the purchaser to apportion, pay and remit the tax and submit a copy of the certificate to the Colorado DOR.

The purchaser can use any reasonable, consistent, uniform method of apportionment, as long as it is supportable by business records. The apportionment should be based on the total purchase price paid by the purchaser; individual licenses may not be apportioned to specific jurisdictions. The MPU Exemption Certificate is not valid for software that is received at the seller’s business location or software that is loaded onto computer hardware prior to sale. (Emergency Reg. 39-26-102.13, Colorado DOR, effective March 2, 2010)

(04/22/2010)

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